SUMMARY CONDITIONS– These do not necessarily apply to the Greater Burlington, Vermont Market
During the second month of the year, the Commercial Real Estate (CRE) market presented a
mixed picture, with certain sectors showing resilience while others continued to face
uncertainties and losses. The office sector has unquestionably borne the brunt of the most
severe and persistent challenges than any other CRE category, and its outlook remains
uncertain. The industrial sector has slowed down, with demand falling beneath levels seen
before the pandemic. However, multifamily and neighborhood retail sectors remain strong. In
the meantime, lower interest rates later this year are expected to create a more favorable
environment for the CRE market by reducing costs, increasing demand, and stimulating
economic activity.
Below is a summary of the performance across various commercial real estate sectors during
February 2024:
Troubles continue in the office sector. Leasing activity has dropped, office availability and
delinquencies have increased, but construction remains nearly at the same levels. As a result,
the office vacancy rate reached a new record high last month at 13.8%. Specifically, there are
more than twice as many more unoccupied office square feet than occupied compared to a
year ago. Looking ahead, the forecast suggests an increase in available office spaces. Leasing
activity, which helps to gauge the level of demand and interest from potential tenants, has
dropped about 50 percentage points below the pre-pandemic levels.
On the other hand, the multifamily sector is progressively rebounding from the lows it
experienced last year. Net absorption has surged 120% compared to a year earlier. Persistently
elevated mortgage rates, hovering around 7%, continue to boost the demand for apartment
buildings. But, despite stronger demand, the vacancy rate increased further in February to
7.7%. The influx of new housing supply to the market has absorbed the stronger demand,
preventing vacancy rates from falling.
Demand for retail spaces continues to slow down. Compared to the early months of 2023, net
absorption has seen a significant reduction, falling by approximately 30 percentage points. But,
despite lower absorption rates, the limited availability of retail spaces maintains vacancy rates
low, hovering around 4%, the lowest rate among any other sector in the commercial real estate
market. With fewer new construction deliveries expected, the fundamentals of this sector will
remain solid in 2024. When new supply is constrained, it can lead to tighter market conditions,
potentially supporting rental rates and occupancy levels, which are key components of the
commercial real estate sector.
In the industrial sector, there are emerging signs of a slowdown, with net absorption falling to
levels lower than any seen in the past decade. While online shopping and e-commerce pushed
up the activity to record high levels at the end of 2021 and beginning of 2022, net absorption is
currently nearly 70% lower than a year ago and 35% below the pre-pandemic level.
Nevertheless, rent growth continues to be the fastest among any other sector of the
commercial real estate market. Specifically, rents for industrial spaces are 5.5% higher than a
year ago. The long-term outlook for the industrial real estate market remains positive, driven by
factors such as the lasting impact of e-commerce and robust construction spending.
Please contact our office for current market conditions in the Greater Burlington Area